If you look at a map of Chile, it's long and thin, and as you get further south, more and more rugged. At some points you require boat, it would seem, to continue. But potentially buses may go on ferries at these points? I'm not sure, I've only been further south in Argentina.
What is the furthest you can travel buy bus in Chile if you head south from Santiago?
The end of most major bus lines from Santiago is in Puerto Montt, from there people usually take the Navimag ferry to go further south, for example to Puerto Natales where there is another road. This is not a short ferry, more a cruise ship and takes four days.
The other option is to go to Chiloé island which is south-west of Puerto Montt, There are several buses a day (Cruz del Sur buses) to Quellon, the southernmost city on Chiloe.
Again there is a ferry involved to get to the island, but the ferry ride is much shorter and I think you stay on the bus.
In January 2011 we took a bus down to Puerto Montt. There was no continuous road to go south further due to a volcano that destroyed the road.
We continued the trip with a bus to Chiloe Island (over a ferry), spent a fews days on Chiloe, then took the ferry at Quellon to Puerto Aisen. About 24h on the boat. From there we were quickly at Coihaique in about 1 hour.
Note: Starting from Quellon you have to be careful with schedules, because transportation starts to become scarce: you may encounters full buses, or bus that do not leave every day like we were used to more in the north.
From Coihaique we left for Argentina with a bus to Puerto Ibanez, then a ferry over the lake to Chile Chico. You have to book the ferry when you book the bus because ferry is often full, even for pedestrians. And there is not much to do in Puerto Ibanez. We had to wait for 2 days in Coyaique because of the ferry.
We slept in Chile Chico, and crossed the border in the morning. When we arrived in Los Antiquos before 9:00, the daily bus to Perito Moreno had already left and was full anyway. So we lost one more day and one night there. But we got the 2 tickets to go to Perito Moreno (the city, not the glacier) and then directly to El Chalten.
If you go to El Chalten in January, bring a tent! We arrived there at 1h in the night, and every hostel was full. Also don't look for the free camp site that may still be indicated in "South America on a shoestring" as it doesn't exist anymore. We had a tent and wanted to trek there, so that was not so much an issue. Also, bring your food: El Chalten is a village built only for tourists, and everything is expensive and trek food and equipment may be hard to find in the small shop there. You should buy trek food in Coyaique if you follow our tracks, don't count on Los Antiguos.
From El Chalten there are many buses to go to El Calafate. This is the local touristic capital (thanks to the Perito Moreno glaciar) so lodging is easy and transportation too. For example we found a bus that brought us directly from El Calafate to the Torres del Paine park entrance and take us back 4 days later to El Calafate: that's was really convenient to do 4/5 of the "W" on the few days we had left.
That was the end of our trip, so we have not been further south: we took a bus to Rio Galegos, and from there a 37 hours ride brought us to Buenos Aires.
There are bus lines from Santiago to Puerto Montt (Tur-Bus), from Puerto Montt to Puerto Natales (mentioned at Torres del Paine site and on a french forum) and from Puerto Natales to Punta Arenas (Buses Fernández, Bus-Sur). From there, a bus goes to Ushuaia with a ferry crossing the Straight of Magellan but its route goes north then crosses the border to Argentina before going south.
